Ethics in Business

Common questions

How does business ethics relate to Corporate Social Responsibility (CSR)?

What are some examples of business ethics issues?

What are ethical dilemmas?

What benefits come from ethical business practice?

Do small and medium-sized companies (SMEs) need ethics policies and codes?

Why produce a code of ethics?

Who in a company is responsible for business ethics?

1. What relevance does ethics have to business?

Ethical values play an increasingly important role in business today.

Firstly, companies do not operate in a vacuum, but are part of a society which expects a certain standard of
behaviour from businesses. Companies require what is often called ‘a licence to operate’. In
other words, they need the approval of society in order to continue doing business. People expect companies
to look after their staff and tell customers the truth. They also increasingly expect companies to address
their environmental impacts and make sure that the people who make their products are treated fairly,
wherever the company operates.

Secondly, ethical values are relevant in providing guidance to staff in situations where the right thing to
do is unclear. Employers cannot take for granted that their staff understand what ethical standards are
expected of them in carrying out their work on behalf of the company. Provision of guidance is therefore
essential.

2. How does business ethics relate to Corporate Social Responsibility (CSR)?

An organisation’s core ethical values and standards should underpin everything that it does and the way
its employees conduct their everyday business. Business ethics is about ‘doing things ethically’.
An organisation cannot be genuinely responsible without an embedded and inherent culture that is based on
ethical values, such as trust, openness, respect and integrity.

How an organisation approaches the social and environmental impacts of its business operations, combined with
its voluntary contribution to the wellbeing of the global and local communities in which it operates, is
often known as Corporate Social Responsibility (CSR). It is often about ‘doing ethical things’.
It is preferable, however, to talk about Corporate Responsibility (CR) as a wider concern, rather than using
the more limiting ‘social’ tag.

3. What are some examples of business ethics issues?

Some of the key issues addressed in current codes of business ethics are bribery and corruption, gifts and
hospitality, conflicts of interest, diversity, health and safety, environmental stewardship, and political
donations and lobbying.

Among newer business ethics concerns is supply chain management, which is increasingly important for
companies, as consumers learn more about the potential environmental and social impact of the way the
products they purchase are produced. Other concerns include customer data protection, work-home balance and
the responsible treatment of suppliers.

As well as being asked to identify and address their wider impacts on society, companies have been under
pressure to consider ‘product responsibility’: for example, the nutritional value of the
products of fast food companies has come under public scrutiny, while alcohol companies are being asked to
consider their responsibility for ‘binge drinking’ by young people.

4. What are ethical dilemmas?

An ethical dilemma involves a situation that makes a person question what is the ‘right’
or ‘wrong’ thing to do. Ethical dilemmas make individuals think about their obligations, duties
or responsibilities in an organisation.

Easier choices involve a right versus wrong answer. The majority of people will agree, for example, that it
is morally unacceptable to pretend that someone else’s work is their own.

However, ethical dilemmas often involve a decision between right and right. An example is where you uncover a
colleague’s misconduct (say, fiddling expenses). You have a duty to your employer to report it, but
also a duty to be loyal to your friend in a situation that could lead to his or her dismissal.

5. What benefits come from ethical business practice?

There are a number of commonsense arguments that ethical business practice positively affects company
performance. For example, if employees are being treated well, workplace productivity will increase.
Similarly, the provision of a responsive customer service may result in increased customer loyalty.

A 2003 IBE report found that during the five years from 1997 to 2001, those companies with a code of ethics
outperformed a similar-sized group, who said they did not have a code, on financial performance measures. A
subsequent study showed that companies that provided training about their ethics code financially
outperformed those who said they did not.

6. Do small and medium-sized companies (SMEs) need ethics policies and codes?

Ethical standards are just as important to SMEs as to larger companies, but the key issues and concerns can
be very different.

Today’s multinational corporations were yesterday’s SMEs. It is therefore sensible for SMEs to
address ethical concerns as early as possible. Many companies make the mistake of only tackling ethical
behaviour standards when problems arise. A reputation takes years to build, but can be lost overnight.

In addition, SMEs are finding that having an ethics policy is now becoming a condition of tendering for
contracts as larger businesses extend their ethical standards to those in their supply chains. SMEs that
have paid attention to the way they do business can find that they have a competitive advantage.

7. Why produce a code of ethics?

Having a code of ethics is good corporate governance practice. The Cadbury Report on Financial Aspects of
Corporate Governance, published in 1992, stated, ‘We regard it as good practice for boards of
directors to draw up codes of ethics or statements of business practice and to publish them both internally
and externally’.

Producing a code of business ethics helps companies to understand and address ethical issues. It encourages
consistent and confident behaviour among employees and raises awareness of company polices, such as ‘speak
up’ phone lines or corporate gift registers.

8. Who in a company is responsible for business ethics?

The short (and correct) answer is everyone.

However, the functional responsibility for the company’s ethical policies and/or ethics code may rest
with a human resources department, company secretary, CR manager, risk manager, compliance officer or
internal auditor. Increasingly, organisations are establishing responsibility at board level, through
committees such as Audit Committees or a dedicated Ethics Committee. While top-management is expected to
show a commitment to the company’s ethics code and set an example with their own behaviour, middle
managers are given operational responsibility for implementing and upholding the organisation’s
ethical standards. In the USA, most large companies employ one or more Ethics Officers; they are on a course
to becoming members of an established profession.